2 growth and dividend stocks I’d pick to help me beat the State Pension

What’s the best way to boost your pension savings, income stocks or growth stocks? Why choose when you can have both?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The meagre UK State Pension will only go a small way towards keeping us fed, clothed and happy in our old age, so we need more in the shape of company pensions and private investments.

That raises the age-old question of whether to go for stocks that are likely to provide capital growth, or those which provide a steady dividend income stream. If you’re still investing and not yet drawing your pension, I really don’t think it makes any difference — your total return is what you get, whichever way.

A growth trust

I’m a big fan of investment trusts for providing retirement wealth, as they’re a way of offering pooled investments where there is no conflict of interest between retail customers and shareholders — because they are one and the same.

Alliance Trust (LSE: ATST) is one I like, especially after a 60% share price rise over the past five years — a period in which the FTSE 100 managed less than 25%. With dividends, the Footsie still handsomely beat a cash ISA, but the Alliance Trust performance is significantly better.

On Monday, it announced the sale of its Alliance Trust Savings (ATS) subsidiary to Interactive Investor for £40m. Its part of the trust’s plans to focus on its global equity portfolio, and, in the words of chairman Lord Smith of Kelvin: “ATS customers, many of whom are Alliance Trust shareholders, will benefit from Interactive Investor’s similar low flat-fee structure, as well as its increased scale and focus.”

Alliance Trust has also been paying progressive dividends, keeping its annual rises ahead of inflation, and that’s something else that I like to see. Although yields are relatively low at around 2%, dividend growth in real-terms can make a significant contribution to your final retirement pot.

Defensive dividends

If you don’t need to spend your dividends right now, you can boost your total retirement capital by reinvesting them in more shares, and I see a tempting dividend prospect in QinetiQ Group (LSE: QQ).

The defence and security specialist has been making some canny acquisitions of late, including the takeover of E.I.S. Aircraft Operations which completed earlier this month. E.I.S. provides airborne training services, and it looks like a good fit for the company to me.

The latest buy, announced Monday, is the acquisition of an 85% stake in Inzpire Group Limited, with an agreement for the remaining 15% after two years.

Inzpire also appears to fit in nicely with QinetiQ’s portfolio of services, with QinetiQ describing the company as “a leading provider of operational training and mission systems for military customers in the UK and internationally.”

Solid returns

The defence business has been in a bit of a squeeze in recent years, but it’s coming out of it, and QinetiQ has been managing to keep its dividend growing well ahead of inflation. In the four years from March 2014 to 2018, the dividend has been lifted by 37%, from 4.6p per share to 6.3p — and forecasts suggest a further 9% over the next two years.

And over the past five years, the share price has put on 38% (even if a bit erratically), providing a tasty overall return — especially for those future pensioners who bought new shares with their dividend cash.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

After crashing 50%, is now the perfect time to buy this world-class FTSE 250 share?

The worst-performing share on the FTSE 250 over the last year is also the most exciting one of all. How…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: July’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

Is this one of the FTSE 100’s best-value growth shares?

Looking for great-value recovery shares to buy today? Based on City forecasts, this could be one of the best that…

Read more »

Investing Articles

Will the Tesco share price hit a 10-year high in 2024?

Up from 200p less than two years ago, the Tesco share price has enjoyed impressive growth lately. Now I'm considering…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Nearing its 12-year low, this FTSE growth stock could be the bargain of the year!

Harvey Jones has happy memories of owning this FTSE 100 growth stock. Now he's wondering whether to take a trip…

Read more »

Investing Articles

BT share price: a bargain or one to avoid?

This Fool has been keeping tabs on the BT share price. Despite looking cheap, he's steering clear of the stock…

Read more »

Electric cars charging in station
Investing Articles

Where will Tesla stock be in 5 years? Here’s what the experts say

The analysts' outlook for Tesla stock in the next few years seems to be all over the place, as the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

3 reasons why I predict UK shares will soar over the next 12 months!

Our writer believes there are plenty of reasons why UK shares will do well over the next year or so.…

Read more »